Archive for August 16th, 2011

This interesting article by Whitney Kisling and Jeff Kearns, Bloomberg, suggests that there may be a connection between the stock market’s recent fall and the drawing down of margin (loans to investors) at the brokerages:

Investor credit at Wall Street brokerages is falling by the most in a year as the Standard & Poor’s 500 Index suffers its biggest losses since the bull market began.

Borrowed money in accounts at 61 New York Stock Exchange firms has fallen 4.6 percent, the biggest drop since June 2010, according to a July 22 statement from New York-based NYSE Euronext. The decline at NYSE firms followed a 36 percent increase to $320.7 billion in eight months, the biggest expansion since 2007. Leverage slipped to the lowest level of 2011 last week, according to Morgan Stanley’s prime brokerage.
…
Margin debt at NYSE firms peaked in July 2007 at $381.4 billion, a 41 percent increase from the level in November 2006. The S&P 500 reached its record high of 1,565.15 on Oct. 9, 2007, then tumbled 57 percent through March 2009. Margin debt climbed to its previous high of $278.5 billion in March 2000. The S&P 500 also peaked at a record that month before entering a bear market in which it lost 49 percent through October 2002, data compiled by Bloomberg show.
…
Institutional investors expect leverage to decrease this year.

What the authors are showing makes intuitive sense. Just as consumers have credit limits, and those credit limits influence the movement of the real economy, investors have credit limits which influence the movement of the financial economy. Real life events, of course, drive the margin calls. But what this is suggesting is that until there’s a move to expand margin, the market will be headed down.

In fact, considering the graph, we could have a long, long way to fall if margin gets called when, say, Europe finds it can’t contain Spain and Italy.

By the way, Cullen Roche links this fascinating paper by Seth Carpenter of the Federal Reserve and co-author Selva Demiralp which asserts that the idea of the money multiplier, by which banks lend out a multiple of their reserves, is a poor model of what goes on. They say that:

Banks have access to non-deposit funding (and such liabilities would also not be reservable), so
the narrow bank lending channel breaks down in theory. Notably, large time deposits, a liability
that banks are able to manage more directly to fund loans, are not reservable and not included in
M2.

Unfortunately, I think Cullen Roche doesn’t understand what models are. They can be really, really unrealistic and yet serve to clarify what is going on. I also think that “Modern Monetary Theory” looks more like hype than anything new.

News Corp. (NWSA)’s editors at the News of the World Sunday tabloid discussed the practice of phone hacking in daily meetings, a former reporter said, increasing the pressure on executives to explain why they were not aware of it.

The practice was “widely discussed in the daily editorial conference” until “explicit reference to it was banned by the editor,” former royal reporter Clive Goodman said in a March 2007 letter that was published by U.K. lawmakers today.
…
Murdoch told lawmakers last month that he hadn’t realized until late 2010 that phone hacking was widespread at the News of the World. That’s been contradicted by Tom Crone and Colin Myler, two former executives of the tabloid

You can see the letter here. I don’t know how one could make it any more plain that these people are crooks.

Well, yes I do. Nick Davies, The Guardian, adds this detail, which makes it clear that the conspiracy went higher:

Goodman’s claims also raise serious questions about Rupert Murdoch’s close friend and adviser, Les Hinton, who was sent a copy of the letter but failed to pass it to police and who then led a cast of senior Murdoch personnel in telling parliament that they believed Coulson knew nothing about the interception of the voicemail of public figures and that Goodman was the only journalist involved.

Rupert Murdoch was “confused or misinformed” when he gave testimony to British lawmakers probing phone hacking by News Corp. (NWSA)’s News of the World tabloid, the company’s former U.K. law firm said.

The alleged confusion resulted in News Corp.’s chairman giving “inaccurate and misleading” statements about why the company’s U.K. unit hired Harbottle & Lewis LLP in 2007 when it was faced with phone-hacking claims, the firm said in a letter to parliament made public today.

The Culture Media and Sport Committee met today Tuesday 16 August 2011 to discuss the evidence it has received in response to its requests to various individuals for further information and clarification, in its work on phone hacking.

Having considered the responses it received as a whole, the Committee has decided to call Tom Crone, Colin Myler, Daniel Cloke and John Chapman to give further evidence on Tuesday 6th September. Depending on their evidence under questioning, the Committee may also have further questions for James Murdoch and others.

Share this:

Like this:

Paul Krugman did more to clarify what a lying, incompetent hypocrite Rick Perry is than all the rest of the media combined (see also Felix Salmon).

Rick Perry has been claiming that he has created half the jobs that were created in America since Obama took office. Set aside that many of these were created by stimulus money, that some were created at the expense of the American people through price gouging on oil, and that many were minimum wage jobs. [added: and all of them were government jobs!]

Let’s just look at Perry’s claim in full context. This graph shows the number of people working vs. the total population aka the employment to population (EP) ratio. Texas has more children than average, so they run a lower EP ratio than the nation. But look: there is simply no difference between what happened in Texas and what happened in the nation.

These statistics can be generated by anyone from data at the St. Louis Fed.

So, there’s no miracle? Well, actually there is. The miracle is that this lying, incompetent hypocrite is taken seriously by the media and the Teabaggers.
______________
Added. And now Perry has added “dangerous,” a word that I use very sparingly, to how he should be described. John McCormick, Bloomberg:

“If this guy [Ben Bernanke] prints more money between now and the election, I don’t know what you would do with him,” Perry said at a backyard appearance in Cedar Rapids, Iowa. “We would treat him pretty ugly down in Texas. Printing more money to play politics at this particular time in American history is almost treacherous — or treasonous in my opinion.”

Just a friendly Texas necktie party for people you disagree with, eh, Governor Goodhair?

A shame. I was hoping he could be nominated and beaten in the election.
_______________
Added, 8/18 [corrected and added a link]: Robert Scheer has unearthed the truth on Rick Perry. Jim Hightower has the lowdown on the lowbrow.